On The Spot Blogs
#Tax Myth 6 - Sole Trader Start Ups Don't Receive Tax Incentives
You have probably heard of lots of incentives for those who invest in start up companies. This is where individuals pay money to a company in exchange for shares in that company. The tax system helps subsidise the investor's risk in the new unproven business.
But what about your own sole trader business?
It might be small scale and, as there are no shares, it's probably just your money. Aren't you taking a risk? Where are the incentives for you? After all, you might have a good idea which in the future trades from a limited company.
Happily the tax system does assist you.
It works by offsetting tax losses from your new venture against other taxable income you have earned in the same year or the previous three years. In addition, this relief is available for any tax loss in the first four years of your new venture.
How does this translate in practice?
Often you will have left your salaried employment where you have paid 40% income tax. If your start your business in January and before 5 April spend say £5,000 on a website, you will have made a tax loss of £5,000.
This £5,000 is offset against the salary you earned in the same tax year before January. The PAYE income tax of £1,000 you paid on £5,000 of salary will be refunded to you after you have sent in your income tax return.
A very helpful addition to your cash flow to invest further in your new business.